CASE 8-1 Worldwide United Corporation Worldwide United Corporation (WUC), a U.S. taxpayer, manufactures and sells products through a network of foreign branches and wholly- owned foreign subsidiaries. Relevant information for these entities for the current fiscal year appears in the following table: try Legal Form Activity Income before Tax Income Tax Rate Dividend Withholding Tax Rate Net Dividend Received by Parent ain Branch Sales $1,000,000 0% $1,000,000 nuda Corporation Sales 8,000,000 0 8,000,000 g Kong Corporation Manufacturing 10,000,000 8,350,000 gary Corporation Sales 10,000,000 9,100,000 nd Corporation Investment 2,000,000 1,750,000 iysia Branch Manufacturing 10,000,000 7,600,000 ico Corporation Manufacturing 5,000,000 3,3250,000 zerland Corporation Service 500,000 269,750 Q VA s. CASE 8-1 Worldwide United Corporation Worldwide United Corporation (WUC), a U.S. taxpayer, manufactures and sells products through a network of foreign branches and wholly- owned foreign subsidiaries. Relevant information for these entities for the current fiscal year appears in the following table: Entity Country Legal Form Activity Income before Tax Income Tax Rate Dividend Withholding Tax Rate Net Dividend Receiv A Bahrain Branch Sales $1,000,000 0% Bermuda Corporation Sales 8,000,000 0 Hong Kong Corporation Manufacturing 10,000,000 Hungary Corporation Sales 10,000,000 Ireland Corporation Investment 2,000,000 Malaysia Branch Manufacturing 10,000,000 Mexico Corporation Manufacturing 5,000,000 Switzerland Corporation Service 500,000 17 Additional Information: 1. Entities C, F, and G manufacture products that are sold in their home countries as well as to sister entities within the WUC Page 368 group. 2. Entity A purchases finished products from Entity F and then sells them throughout the Middle East. Only 5 percent of A's income is generated from sales to customers in Bahrain; 95 percent of A's income is from sales to foreign customers. 3. Entity B purchases finished products from Entity G and sells them throughout North and South America. Only 1 percent of B's income is from sales to customers in Bermuda; 99 percent of B's income is from sales to foreign customers. 4. Entity D purchases finished products from Entity C and then sells them throughout Europe. Only 40 percent of D's income is generated from sales to customers in Hungary; 60 percent of D's income is from sales to foreign customers. 5. Entity E makes passive investments in stocks and bonds in European financial markets. All of E's income is derived from dividends and interest. 6. Entity H provides accounting and other management services to WUC's other foreign operations. All of H's income is derived from providing services to sister companies within the WUC group. Required: 1. Determine the amount of U.S. taxable income for each entity (A, B, C, D, E, F, G, and H). 2. Calculate the foreign tax credit allowed in the United States, first by foreign tax credit basket and then in total. 3. Determine the net U.S. tax liability on foreign source income. 4. Determine any excess foreign tax credits and identify by basket. CASE 8-1 Worldwide United Corporation Worldwide United Corporation (WUC), a U.S. taxpayer, manufactures and sells products through a network of foreign branches and wholly- owned foreign subsidiaries. Relevant information for these entities for the current fiscal year appears in the following table: try Legal Form Activity Income before Tax Income Tax Rate Dividend Withholding Tax Rate Net Dividend Received by Parent ain Branch Sales $1,000,000 0% $1,000,000 nuda Corporation Sales 8,000,000 0 8,000,000 g Kong Corporation Manufacturing 10,000,000 8,350,000 gary Corporation Sales 10,000,000 9,100,000 nd Corporation Investment 2,000,000 1,750,000 iysia Branch Manufacturing 10,000,000 7,600,000 ico Corporation Manufacturing 5,000,000 3,3250,000 zerland Corporation Service 500,000 269,750 Q VA s. CASE 8-1 Worldwide United Corporation Worldwide United Corporation (WUC), a U.S. taxpayer, manufactures and sells products through a network of foreign branches and wholly- owned foreign subsidiaries. Relevant information for these entities for the current fiscal year appears in the following table: Entity Country Legal Form Activity Income before Tax Income Tax Rate Dividend Withholding Tax Rate Net Dividend Receiv A Bahrain Branch Sales $1,000,000 0% Bermuda Corporation Sales 8,000,000 0 Hong Kong Corporation Manufacturing 10,000,000 Hungary Corporation Sales 10,000,000 Ireland Corporation Investment 2,000,000 Malaysia Branch Manufacturing 10,000,000 Mexico Corporation Manufacturing 5,000,000 Switzerland Corporation Service 500,000 17 Additional Information: 1. Entities C, F, and G manufacture products that are sold in their home countries as well as to sister entities within the WUC Page 368 group. 2. Entity A purchases finished products from Entity F and then sells them throughout the Middle East. Only 5 percent of A's income is generated from sales to customers in Bahrain; 95 percent of A's income is from sales to foreign customers. 3. Entity B purchases finished products from Entity G and sells them throughout North and South America. Only 1 percent of B's income is from sales to customers in Bermuda; 99 percent of B's income is from sales to foreign customers. 4. Entity D purchases finished products from Entity C and then sells them throughout Europe. Only 40 percent of D's income is generated from sales to customers in Hungary; 60 percent of D's income is from sales to foreign customers. 5. Entity E makes passive investments in stocks and bonds in European financial markets. All of E's income is derived from dividends and interest. 6. Entity H provides accounting and other management services to WUC's other foreign operations. All of H's income is derived from providing services to sister companies within the WUC group. Required: 1. Determine the amount of U.S. taxable income for each entity (A, B, C, D, E, F, G, and H). 2. Calculate the foreign tax credit allowed in the United States, first by foreign tax credit basket and then in total. 3. Determine the net U.S. tax liability on foreign source income. 4. Determine any excess foreign tax credits and identify by basket